Economist questions house price statistics

A senior economist has questioned the credibility of the Central Statistics Office’s house price statistics, and said the decline in house values is much higher than the CSO estimates.

Conall MacCoille, chief economist with Davy, said the launch of the national property price register “has added to the evidence that the CSO index is increasingly unrepresentative of true market conditions”.

The latest CSO house price index shows that, after an increase of 1.1% in November, residential prices fell 0.5% in December.

That meant that, in the year to December, prices at a national level fell by 4.5%. That compared to an annual rate of decline of 5.7% in November and a decline of 16.7% recorded in the 12 months to Dec 2011.

In Dublin, residential property prices fell by 1.3% in December and were 2.5% lower than a year ago. Across the rest of the country, the prices of residential properties were unchanged in December compared with a decline of 1.1% in December last year.

The CSO said residential prices in Dublin are now 56% higher than their peak in Feb 2007, and across the rest of the country the decline was 47%. That means a national decline of 50%.

Mr MacCoille said the CSO’s indication of a peak-to-trough decline of 50%-56% in Dublin and 45% elsewhere “does not seem to be credible”, with most market participants indicating declines of at least 60%.

“Clearly, cash investors have been attracted to the market by the recovery in rental yields, rising rents, and improvement in house price-to-income ratios to levels last seen in the 1990s,” he said.

“Relative to medium- tolong-term metrics, Irish house prices seem undervalued. However, just as Irish house prices overshot sustainable levels during the boom, they could undershoot for the foreseeable future. With new mortgage lending unlikely to exceed €2.5bn in 2012, demand has been constrained. In this environment, support for Irish house prices has reflected not only cash buyers, but also illiquidity.”

He said there was evidence of a lack of housing supply in many areas despite the 15% vacancy rate identified in the 2011 census.

“So the Irish housing market should not naturally be starved of supply,” said Mr MacCoille. “Rather, exceptionally low levels of repossessions in Ireland appear to have put an artificial floor on the market. How mortgage arrears are dealt with in 2013 will be a key determinant of the outlook for both transactions and prices.”

NCB Stockbrokers chief economist Philip O’Sullivan had an optimistic outlook on the market, saying that, following four consecutive years of double-digit price falls, recent CSO data illustrated the pace of decline began to slow during 2012.

“Elsewhere, data recorded by the Property Services Regulatory Authority show a significant increase in transactions volumes during the first 11 months of 2012 [national +31% year-on-year, Dublin +44% year-on-year] as an element of confidence has returned to the market,” he said, while stating that “oversupply remains a concern” in rural areas.